All eyes on Budget 2011 and economic transformation

More sugar-coated announcements ahead?

Lim Sue Goan

It is being speculated that the next general election would be held next year. In view of that, will there be a lot of goodies in the Budget 2011 to be tablet by Prime Minister cum Finance Minister Datuk Seri Najib Razak on Friday 15 October? If we take into consideration the need to reduce the fiscal deficit, then such a possibility may not happen.

However, it is believed that the federal government will continue with its past practice by adopting the people-friendly style, with no pain and no additional burden on the people. But, it is not going to have many surprises.

I believe that there will still be some good news, but the "gifts" would not be too big as the government may not be able to afford them. Therefore, it might be a wishful thinking to expect a reduction in corporate and personal income taxes.

The recent tax hike on cigarette is also intended to reduce the "level of pain" of the Budget.

In fighting against real estate speculation, the government should require people to pay 30% of down payment when they buy a third house, limit the loan amount for houses above RM500,000 and increase the property gain tax. Otherwise, the home ownership goal can never be achieved and the burst of real estate bubble will bring great harm.

Under a situation with increasing government expenditure, stagnant treasury income and deteriorating external economic environment while the government is in need of resources to promote economic transformation, what strategies should be adopted by the government to achieve fiscal discipline, increase national income, improve people's quality of life and to ensure sustainable economic growth?

First, the government must not try to avoid strengthening fiscal management. The total allocation for next year is estimated to be RM197.6 billion, an increase of 3.2% over this year. But RM152.1 billion or 77% will be spent on operating expenses and a very large part of them will be spent on salary and benefit payments for the 1.29 million of civil servants. If the expenditure in this area increases year by year, the government will not have the extra money for development.

The lack of effective planning for daily expenses of many government departments and projects has caused money to be wasted and give rise to opportunities for fraud practices. Therefore, the Prime Minister’s Department should implement a national thrift movement.

A total funding of over RM1.4 trillion is required for the Economic Transformation Programme (ETP). If it lacks effective management, let's say if 20% to 30% of the funding is "wasted", where can the government find money?

The huge amount of government subsidies has also been wasted because of loose management.

Secondly, domestic demand must be stimulated. As a trading nation, for sure Malaysia is affected by the slow economies in Europe and Japan. Therefore, we can only rely on domestic demand. But the so-called domestic demand stimulation should not be a repetition of past practices like having major projects and privatization. Instead, we must unlock domestic potential to stimulate economic growth.

Since about 80% projects of the ETP are financed by the private sector, the government should give more incentives so that the private sector will become the engine of growth. If the 25% of corporate tax is not reduced, how would the private sector have an investment power?

Similarly, personal income tax rate, which is even higher than corporate tax rate, has hindered individuals from starting their own businesses, and also failed to retain talents.

Allowing privatization is good but they should not just move the eggs from a basket to another basket, but must ensure that the eggs are hatched.

Economic transformation should emphasize on creativity, value-added, research and development. Increasing the growth data with major projects will never be sustainable or help enhancing the country's competitiveness. - Sin Chew Daily